ruletheworld

Feb 142017
 

Santiment ICO
Santiment ICO presale (first round of the ICO) sold out within 2.5 hours, raising its target 12,000 Ethereum (ETH) during this time. The ICO presale had a lower limit of 4,000 ETH and an upper limit of 12,000 ETH. Unlike the recent Dfinity ICO seed round, the cap was a hard cap and therefore investors who weren’t able to get in during this time were out of luck. The presale ICO cap of 12,000 ETH, which was under $150,000 when the ICO closed, would be considered to be on the low side.

The contract, and its associated transactions can be viewed on the Ethereum blockchain.

About Santiment

The santiment project is a ‘crowd sentiment data platform for crypto and blockchain assets’. The value of the token comes from its use on the platform. The token is required to pay for services on the network, while contributors to the platform earn the token.

The project aims to help crypto traders improve with better data. For instance, users can play crypto games in simulated environments before putting real money on the line. In addition, the projects aims to develop better visualization tools than what exist today in the market. The platform’s data might also become useful for researchers looking into the crazy crypto markets.

The value proposition of Santiment depends highly on the community, and indirectly on the data produced by the users. The data generated by crypto markets may not be as easy to analyze as regular markets. However, crypto traders are an active bunch, and their ranks are growing. Santiment might tap into their natural tendencies to trade (or perhaps over-trade) and generate the data required.

Investors and Follow-up Rounds

Given the small maximum size, only a few investors were able to get the Santient tokens in the presale ICO. Notably, the ICONOMI.PERFORMANCE fund invested in Santiment. This would be ICONOMI’s third investment in the cryptocurrency space, after Golem and Byteball. This is an interesting move, because there was no prior indication to the market that ICONOMI might be interested in this ICO. That might be a deliberate move, given the small cap.

Some investors are looking forward. The project will use the funds raised today for its whitepaper and a minimum viable product (MVP). The creators estimate a time frame of 3 months for this.

Also, investors might like to know that this was just the presale to the main token crowdsale that will likely take place after the whitepaper and MVP are released. However, investors who were able to get in on the presale will get a 54% ‘bonus’ in terms of price.

 

Feb 122017
 

Dfinity 1M CHF Raise
Dfinity, a new crypto ICO, raised its target of 1 million CHF (Swiss Francs) in just under 75 minutes. The Dfinity seed round started at 6:00pm GMT on 12th Feb 2017 and ended at 7:15pm GMT on the same day. Due to the soft cap of the round (see below), the seed round ICO will go on until around 7:15pm GMT on 13th Feb 2017.

This was for its ‘seed’ round. Dfinity will have another round of funding in the future as well, as part of its ICO efforts. Due to the earlier stage of the seed funding (and thus a higher risk of investment), there is a bonus to invest in the seed round compared to the follow-on round.

The project raised an impressive amount of money in a quick time. It is possible that institutional funds have invested a good amount of money in this project.

Dfinity ICO Soft Cap

Dfinity ICO is also unique in having a ‘soft cap’ on the amount of money raised instead of a hard cap or no cap.

In hard cap ICOs, the ICO ends whenever a certain threshold of funds is  reached. This presents problems if the ICO is ‘oversubscribed’ i.e. if many people want to invest in the ICO. For example, SingularDTV put a hard cap of $7.5 million on its ICO. However, it was sold out in under 15 minutes. This causes the token distribution to go to speculators more than the believers and early adopters of the project. This can be quite problematic when the purpose of the ICO is as much to create that initial set of users and early adopters as much as it is to raise money.

In no cap ICOs, there is only a time limit up to which an unlimited amount of funds can be raised. The biggest problem with this model is that investors don’t know how much the tokens they are buying are worth, because it depends on how much the total funds are going to be raised in the future. This can present situations like The DAO which would have been a worthy experiment at $5 million raised but not at $100 million raised.

Dfinity is structuring its ICO as a ‘soft cap’, which means they will allow 24 hours after the goal is reached as the cut-off. This will prevent ‘insta-ICO sellout’ situations like FirstBlood and SingularDTV tokens. Therefore the Dfinity ICO will still be open for the next 24 hours after reaching the 1 million CHF goal.

About Dfinity and the ICO Token

Dfinity is a project similar to Ethereum (although they say they don’t compete with Ethereum) in that it allows the execution and creation of arbitrary smart contracts. The biggest difference is that instead of the smart contract code being the ultimate authority (and having situations like The DAO when a bug in the contract code can cause a loss of funds), Dfinity has a group consensus process it is calling the Blockchain Nervous System (cheesy name). There are many limitations on using it, but it can be deployed for special situations that would prevent issues like The DAO.

Feb 112017
 

ICO Investors of the future

ICO investors in the near future will likely look a lot different from what they are today. This is due to many factors, from secular changes in the industry to the types of projects raising capital, to the types of people who are involved as investors in these projects. Gone are the days of pseudonymous developers raising millions of dollars without a business plan or a whitepaper.

ICOs Are Changing

ICOs have evolved significantly over the last 5 years or so since they started, with Mastercoin being the first major one. Instead of just speculation, there are many dividend paying cryptocurrencies. The tokens also have economic value, beyond just being a mere cryptocurrency. ICOs today are made out of serious ambitious teams with a vision (and yes, a whitepaper at the very least). The valuation and return calculations are different. They also lend themselves better to valuation models, which is liked by more serious investors as they look for returns beyond speculation.

Therefore, the profile of ICO investors is changing. Let’s look at the trends, and understand the implications.

Who Invests in ICOs Today?

ICO investors today are usually comprised of early adopters. The cycle usually goes like this: some investors get ‘rich’ through one crypto investment, and that money gets recycled into other projects.

We see that play out often. The first big crypto was of course Bitcoin. Some notable names that made it big include the likes of Joseph Lubin, who went on to be a co-founder of Ethereum and the founder of the Ethereum venture studio Consensys.

We see this play out with Ethereum too. The DAO was able to raise over $100 million before its collapse. That money was mostly from the Ethereum investors that got rich from Ethereum. Since ETH has kept its value, more or less, all the new ICOs on Ethereum benefit from these investors wishing to invest in ETH-based tokens. Therefore you see tokens like SingularDTV or FirstBlood on Ethereum sell out in a matter of minutes.

ICO Institutionalization has Begun

One look at the numbers will tell you that ICOs are serious business. In 2016 alone, ICOs raised over $100 million. That’s serious money. With these types of investments, institutionalization is only natural. The profile of ICO investors is already shifting from a few big players, or ‘whales’ to institutions where regular people pool their money, thus giving the institutions more say in projects. This is an interesting trend, and something that every ICO investor and crypto-enthusiast should anticipate. It is important to understand the motivations and methods of institutions over individuals.

Here are some serious ICO investors today. I am listing the institutions in the space.

  • Coin Fund: Coin Fund is one of the most respectable institutional players in the ICO and crypto space in general. The provide some very good analysis of new projects for everyone, which lends credibility to their skills. It is an ever-changing field, and Coin Fund’s returns are in no way extraordinary so far. However, they manage investor risk especially when new investors are not too familiar with the various intricacies and nuances of crypto projects. Funds like this will likely come up more in the future.
  • Polychain Capital: Polychain Capital has adopted the more traditional hedge fund model for their fund. It is simply a hedge fund that investors in ICOs and cryptocurrencies. Notably, some of the biggest names in Silicon Valley Venture Capital have invested $10 million into this company. That’s serious money. As cryptocurrency grows as an asset class beyond just looking at Bitcoin as an asset class, traditional hedge fund structures will likely attract more money.
  • ICONOMI: ICONOMI is a recent project, and is itself funded through an earlier ICO, with its token already trading in the markets. ICONOMI has already invested in Golem, one of the recent ICOs. The funds managed by ICONOMI have a few million dollars in commitment. This will impact ICO investors in the future because it will be a big fish that will impact the markets. Keep an eye out.

The trends towards institutionalization are clear. ICO investors are shifting from being early adopter individuals to more savvy individuals. These individuals are relying more on funds and institutions. These funds act as a pool of capital. Therefore, by virtue of their increased size, they will play a bigger role in the future of cryptocurrency investments.

Photo Credit: francistoms

Jan 162017
 

Spectrocoin review
This SpectroCoin review will dive into the features of SpectroCoin that make it stand apart – ability to hold multiple currencies, and use them to buy Bitcoin, and also its Bitcoin Debit Card which is as versatile as it gets when you want to use your Bitcoin to shop everyday. As Bitcoin expands in scope and use, there are many services that allow you to buy Bitcoin, sell Bitcoin, hold Bitcoin, and spend Bitcoin – essentially all the functions that you’d normally do with your own money. However, what makes SpectroCoin stand out is that it is able to do all these functions and more in the simplest way possible.

As a reminder, we do not recommend holding significant amounts of Bitcoin in any online wallet or service, even SpectroCoin. If you’re holding for the long-term, you should buy Bitcoin, and transfer it to a wallet whose private keys you control. If you hold significant amounts of Bitcoin, we strongly recommend getting Bitcoin hardware wallets.

Now let’s dive into the SpectroCoin review.

Note: This is a sponsored review by SpectroCoin.

Multiple Currencies to Buy and Sell Bitcoin

SpectroCoin allows you to hold multiple currencies. This is a feature severely lacking in many other Bitcoin services. Even the most popular of all, Coinbase, won’t allow you to hold multiple currencies. At SpectroCoin, you can hold US Dollars, British Pounds, and Euro. This is important to me, as it reflects the global nature of Bitcoin. It is also common in Europe to have multiple currencies (GBP and Euro, for example) and bank accounts with multiple currencies.

Spectrocoin accounts

Once you fund your account with USD, GBP, or Euro, you can buy Bitcoin or sell Bitcoin directly from the interface. The price is competitive and updated real-time. You will know the price when you’re buying or selling.

Buy Bitcoin SpectroCoin

Selling Bitcoin is very similar as well. If you’re depositing government currencies (USD, GBP, Euro), you need to fill in the profile with your personal details. This is actually a very good feature – you can register for SpectroCoin without providing identifying information. You only need to give this information when doing specific tasks like buy Bitcoin from the interface. This is a good privacy feature.

To transfer government money into your account, you can use a debit card, a credit card, or use a bank wire. SpectroCoin is one of the few ways you can use a credit card to buy Bitcoin.

Multiple Countries

SpectroCoin supports more countries than most other services out there. Remember though that the currency options are still limited to USD, GBP, and Euro. However, someone from Algeria or Qatar can still buy Bitcoin from SpectroCoin. You can see the list of all supported countries here. Again, if you’re in the US or Europe, you can probably use Coinbase, but outside of that, such services are limited. SpectroCoin is as good an option for US and Europe as it is for the rest of the world.

However, do remember that SpectroCoin will comply with EU regulations irrespective of where you’re physically located. This means you may be asked for state-issued identity, like a passport, to use some of the services like buying or selling Bitcoin, or transferring funds.

Bitcoin Debit Card to Spend Bitcoin

This part of the SpectroCoin review is for its debit card service. It is one of the few issuers of global Bitcoin debit cards. You can use the SpectroCoin debit card to shop regularly, or to withdraw cash at ATMs. If you hold Bitcoin in your SpectroCoin account, then they will automatically sell Bitcoin when you make a purchase with your SpectroCoin debit card.

Spectrocoin debit card

If you want to use the Bitcoin debit card, you should know about the fees. They charge $1 a month as service fees, and $9 shipping fees. There are other fees like conversion and forex fees. You can see the full set of fees here. A Bitcoin debit card is a great way to spend Bitcoin. You can also use the debit card to get cash out of ATMs globally, although I find the fees to be high.

Dec 232016
 

Circle Alternative

We covered earlier this month that Circle ended support for buying Bitcoin. Since then, we’ve gotten a lot of queries about what the best methods to buy Bitcoin are. This post is to give you alternatives to Circle to buy Bitcoin that are as convenient as Circle (actually, Circle was really good and convenient to buy Bitcoin, so it isn’t the same, but close enough I suppose).

The news and timing of Circle pulling out of the Bitcoin market couldn’t have been worse. The price of Bitcoin is rallying, and as of writing this, the price is hovering around $903 per Bitcoin. Compare this to the price of Bitcoin around $750 when Circle announced the shut down of the ability to buy Bitcoin on its platform and you get the idea why people were really unhappy. With the price rally, many people new to the Bitcoin markets are looking to get into it. Here are some good ways for them to buy Bitcoin.

Coinbase: Coinbase is the service most like Circle, and is the closest alternative to Circle. It is available in 30+ countries including the United States. If you’re a US-based person, Coinbase is probably the easiest way to buy Bitcoin. You just need to connect your bank account with your Coinbase account, and you’re all set to go. There are varying limits and verifications. If you’re sufficiently verified, you can buy Bitcoin instantly. Coinbase also has an exchange called GDAX. In addition, you can use Coinbase to buy Ethereum as well.

Buy Bitcoin on Coinbase

Gemini: Gemini is the latest US based exchange run by the Winklevii twins (of Facebook/the social network fame). The twins are seriously trying to get the first Bitcoin ETF approved in the US, and have a pending ETF application with the SEC. In addition to being a regulated exchange, Gemini has a closing auction that moves a significant amount of volume sometimes (similar to what the NYSE does at closing). It is newer than Coinbase but is focused exclusively on Bitcoin and is professional-grade.

Gemini auction data

Local Bitcoins: This allows you to buy Bitcoin peer-to-peer. To buy Bitcoin, you will transfer money to someone and you will receive Bitcoin into your wallet after the transaction is confirmed. The prices tend to be a bit higher but this method provides you with greater anonymity when buying Bitcoin. In addition, there are many different sellers, and you can use many different methods to buy Bitcoin, from ACH to Wire transfer to PayPal. Obviously the prices may be higher if you’re using chargeback methods like PayPal but you have the option. Depending on the city, you might also be able to buy Bitcoin with cash here.

Buy Bitcoin from LocalBitcoins

Bitsquare: This is not the best alternative to Circle in the sense that they are on the opposite spectrum when it comes to ease-decentralization spectrum. Circle and Coinbase are very centralized, and easy to use. Bitsquare is completely decentralized and hard to use. However, in the spirit of decentralization that Bitcoin promotes, here’s an alternative if you’re looking for one.

Photo Credit: derekbruff

Dec 102016
 

Olaf Hedge Fund A16z USV

‘Digital Asset’ trading is set to enter the mainstream financial industry with Polychain capital raising $10 million from venture capital firms Andreessen Horowitz and Union Square Ventures. The hedge fund, Polychain capital, is run by Olaf,the first Coinbase employee who quit earlier this year to start his own venture. The round is the first venture capital money raised for a company that actively trades digital currencies on behalf of clients. The hedge fund was created to trade not just Bitcoin but also other cryptocurrencies or ‘digital assets’ on various exchanges.

The investment round would be the first for some of the venture capitalists active in the space. Traditionally, the venture capital industry have focused on technology-based companies in this space that help expand the digital currency ecosystem. However, this investment round is different in that the hedge fund is purely a financial entity that takes money from investors to trade in the cryptocurrency markets.

Wall Street Calling

The move will ring some alarm bells on Wall Street with Silicon Valley encroaching its traditional turf. In addition, although several investment firms like Fortress and Global Advisors have gone on record disclosing Bitcoin investments, there hasn’t been any talk of firms involved in the broader cryptocurrency market, including altcoins.

It is also telling that Olaf was the first employee at Coinbase and perhaps shared some of the ethos of the founders, who have been vocal about ‘digital assets’ or ‘appcoins’ or more recently ‘protocol tokens’. However, it is important for large companies like Coinbase to tread carefully due to the many pitfalls and scams that litter the space. Missteps by large companies may not be looked upon kindly by the investors.

In addition, a lot of these tokens use the ICO model to raise money which has its own pitfalls and can resemble stocks in certain cases. That may not go down well with the SEC that regulates stock issuances very strictly. There are also questions around price fixing and influencing markets unethically that might be illegal under the SEC or CFTC rules, so firms need to be careful not to be caught up in the crosshairs.

Besides the regulatory aspects, however, there is ample opportunity for smaller firms to trade other people’s money, and will likely be good for the broader cryptocurrency ecosystem.

‘Altcoins’ Gain Respect

The idea of providing investment exposure to the broader cryptocurrency market, not just Bitcoin, is not new of course. The latest venture towards this goal is ICONOMI that plans to launch two funds on the Ethereum platform. However, teams like ICONOMI lack any financial knowledge around trading and index-construction and therefore very unlikely to see any serious investor uptake. With Polychain Capital, Olaf might be able to convince traditional investors to give cryptocurrency a try.

Dec 072016
 

Circle ends Bitcoin buy

In a major blow to the way Bitcoin enthusiasts can buy Bitcoin, Circle, one of the best funded venture capital firms in the space has decided to end the ability to purchase Bitcoin through its service. Instead, Circle is referring customers and potential customers to Coinbase, once considered its competitor. Thus, Coinbase has become the best Circle alternative for those in the United States and rest of the world as well. Circle, led by Jeremy Allaire, is instead ‘pivoting’ to a ‘blockchain’ without providing any details. However, by the looks of their new marketing, Circle wants to pivot into being a ‘social payments app’, akin to Venmo.

For the Bitcoins already held by Circle, the owners can move them into a wallet they control, or leave them on the Circle app. They can also convert the Bitcoin into USD at Circle’s market rate.

Circle is the latest startup in a series of high-profile and well funded startups that were born as Bitcoin companies but have since pivoted into other areas. Chain, another Silicon Valley startup had done the same, pivoting from a Bitcoin API provider to a private blockchain solutions provider. It is unclear if this is a push from the startup founders or from the venture capitalists that back them during the initial growth stages and push for exit paths either through acquisitions or through going public.

For its part, Circle has remained a controversial company in the Bitcoin space. It charged no fees to buy and sell Bitcoin on its platform, thus helping many who were new to the space get their first Bitcoins. It also made it very easy to buy Bitcoin on its platform. However, its founder has gone on record criticizing Bitcoin and saying that he doesn’t believe it will last for a decade.

Circle was thought to be in competition with its other Silicon Valley startup, Coinbase. With Circle shutting its doors to Bitcoin, Coinbase remains the simplest way to purchase Bitcoin, other than on exchanges. However, be aware that Coinbase now charges 1.5% fees to buy or sell Bitcoin through its platform.

The other alternative US based investors have is to buy Bitcoin through exchanges like Gemini, or even Coinbase’s own exchange called GDAX.

Photo Credit: h-e-a-p

Dec 062016
 

irs-logo

The U.S. government has always taken a somewhat hands-off approach concerning Bitcoin. With some countries around the world flirting with the idea of recognizing Bitcoin as legal tender, or officially adopting it, U.S. financial regulators instead classified the cryptocurrency as a commodity. This means that it’s viewed in a similar way to a stock or precious resource, rather than as a peer for the dollar or any kind of foreign currency.

That doesn’t mean Bitcoin has free reign, however. In fact, the Commodity Futures Trading Commission cracked down on cryptocurrency trading when it made the ruling that Bitcoin was a commodity, requiring trading platforms to comply with its own registration and regulation processes. But this didn’t really constitute any kind of direct government involvement or endorsement of Bitcoin.

This is in keeping with policies we see around the world, despite the aforementioned tendency of a handful of nations to get more involved. As one analysis of Bitcoin’s place in world markets put it, countries do not accept Bitcoin as a transactional currency between individuals and the state, even if they allow it to be used as an alternative to everyday currency. This is the case for several different reasons—among them the idea that many governments are wary of the fact that Bitcoin can be used as an “imaginary” currency aimed at purchasing illegal goods.

Interestingly enough, while Bitcoin cannot be used in financial transactions with the government, the government still wants to keep an eye on what exactly people are doing with it. A couple of years ago, the IRS referred to Bitcoin as property, which was significant in that the acquisition and sale of property must be tracked for taxing purposes. The alternatives were for Bitcoin to be taxed as capital gains, as currency, or not at all. But now it’s expected that anyone mining or being paid in Bitcoin must record the amounts (in U.S. dollars) as pieces of property.

Now, things are getting a little bit more complicated. Because Bitcoin grew so rapidly and wasn’t initially addressed by the IRS or the U.S. government, there are a few years’ worth of uncertain data that the IRS suddenly wants to get its hands on. Recently, the organization has ordered the release of customer records from Coinbase—the largest provider of Bitcoin services in the United States. While the IRS has not accused Coinbase itself of any wrongdoing, it stated that there may well be Bitcoin users who have (presumably either knowingly or unwittingly) committed tax fraud by failing to comply with policy regarding cryptocurrency.

Coinbase appears poised to fight the Justice Department regarding this order, and it’s likely to become a fairly big story in crytpocurrency circles. The idea of a service releasing specific customer information and transaction records is antithetical to the very purpose of Bitcoin, and what happens in this developing case could set some interesting precedents for how Bitcoin investors operate in the near future.

Nov 202016
 

Dividend Paying Cryptocurrencies

Dividend paying cryptocurrencies are becoming a dominant, emerging trend. Crypto-investors should be aware of their dynamic, and how they can enhance returns. Given their similarity with dividend-paying stocks, we can look at historical data and models from the stock market to try and make predictions on how the dividend paying cryptocurrencies will or could evolve over time.

Dividends vs. Proof of Stake Rewards

Before we proceed further, I want to clarify that proof of stake rewards do not qualify as dividends. Dividends are paid via economic profits, whereas proof of stake rewards are paid via inflation. These should not be confused. In order to pay dividends, the cryptocurrency needs to provide some economic benefit, and use those proceeds to pay dividends to the token holders. Remember – earnings, not inflation.

Some proof of stake cryptocurrencies will pretend or mislead investors, and call their stake rewards dividends. Please don’t fall for that. In this article, we’ll strictly discuss ‘real’ dividends, i.e. earnings created in the ecosystem, and not ‘fake’ dividends paid out via inflation of the monetary base.

A Brief History of Dividend Paying Cryptocurrencies

To be sure, the idea of cryptocurrencies paying dividends is not new. However, the idea has evolved over time, and so have the implementations.

Bitshares

The first time the idea was seriously used in a cryptocurrency system that I am aware of was in Bitshares (if it weren’t for the founder’s greed, it could today have been a great system). Bitshares originally was a decentralized asset trading platform that traded market-backed assets, with game-theoretic price convergence between the Bitshares-assets and real-world assets.

Bitshares’ original idea and implementation was that the entire ecosystem would take a fee for trades that occur on its platform, say, BitBTC/BitUSD trades. This fees is then returned to all the BTS holders. This original implementation didn’t increase the supply of BTS to the holders while keeping supply constant. Rather, due to programmatic ease, it just decreased the overall BTS supply, in effect making each BTS a little more valuable.

This is more like a stock-buyback rather than a dividend. Economists would argue they are the same thing, but psychologists should know better. The Bitshares idea never took off, and the dividends were limited anyway. Add in a later inflation schedule, and the supply increased way more than any economic benefit to the system, thereby rendering the whole idea invalid.

DigixDAO

DigixDAO was the first Ethereum-based token that started paying dividends. Note that this dividend is paid from earnings, not inflation. The earnings model comes from gold storage – the Digix Gold Tokens (DGX) are asset-backed Ethereum tokens (gold-backend) that freely trade in the market and can be transferred via the Ethereum network to Ethereum addresses. This generates fees – usage and storage fees. This fees, in the form of earnings of the DigixDAO, is distributed to the holders of DigixDAO, the DGD tokenholders.

Note that unlike Bitshares, DigixDAO has a full backing of gold in its valut. This naturally also requires costs to maintain, insurance, audits, etc.

Augur

After the launch of Ethereum and its use as a serious cryptocurrency platform, there was a renewed interest in systems built on top of Ethereum that had real economic benefit. Many projects chose to provide that economic benefit in the form of dividends to the holders of the tokens.

The first large-scale Ethereum project to implement this idea was Augur. Augur is a decentralized prediction marketplace where REP (reputation) tokenholders report on all the events created in the system. To provide incentives for them to report (and report correctly), they are given a certain fee from all the markets.

This economic system in Augur is quite clear. REP tokenholders get rewarded based on the total economic activity occurring in the Augur system. The more people use Augur to place bets and trade them, the more the REP holders get paid. The payment to REP holders is clearly from the economic benefits provided by the system, not via inflation. Note that Augur differs from some other Ethereum-based tokens in that there is no ‘central’ party that generates earnings (centralized gold storage in Digix, the ICONOMI team in ICONOMI, the Singular team in SingularDTV, etc.) and the system is completely decentralized – there is no one party that holds power over the system.

Note that Augur as a token has launched, but the full platform is still in Alpha and hasn’t launched yet. It would be a great case study for dividend paying cryptocurrencies when it launches.

Other Projects

Many projects followed Augur that provide dividends from the economic activity being created. Here are some of these Ethereum-backed tokens:

  • ICONOMI (ICN) – it is a crypto fund-management platform that will create and trade an index-fund like token and a hedge-fund like token. The future plans also include a fund management system open to all investors and traders. The more popular these funds become, the more dividends ICN tokenholders get.
  • SingularDTV (SNGLS) – it is a digital rights management platform combined with original content. The original content includes a documentary and a mini-series. The more revenue the original content production gets, the more dividends get paid out to SNGLS holders. Also, the more their digital rights management platform gets used by artists, the more the payout to SNGLS holders.

Basic Terminology

Let’s discuss some of the basic terminology required to analyze dividend paying cryptocurrencies. These are similar to the corresponding terminology used for the valuation of other financial instruments, like stocks.

  • Revenue: This is the total amount of money brought in via sales of goods and services by the ecosystem. Examples of services include Augur, which provides the service of a decentralized prediction marketplace. Examples of goods include Nodio, which provides a home router with additional security layers built in.
  • Cost of Goods and Services (COGS): This is the money spent to acquire the revenue. We do not include any prior costs, such as running a foundation/organization that is responsible for creating the software product and other marketing costs. These are paid out through the ICO funds. We are interested only in the costs associated with providing the service. Some systems, like Augur, have a zero cost. Some others, like ICONOMI, have a variable cost that is determined at the discretion of the founding team.
  • Earnings: This is simply the difference between revenue and COGS. Earnings = Revenue – COGS. Earnings is the profits generated by the ecosystem.
  • Retained Earnings: This is the money that is earmarked to grow the ecosystem further. If a project has a positive net present value (NPV) (for simple cases, if the internal rate of return (IRR) is more than the cost of funds), then retained earnings can be used to take that project up, and hopefully it has a net positive impact on ‘shareholder’ value. Different projects handle this differently. Augur, for instance, has no retained earnings. SingularDTV has a fixed 40% retained earnings.
  • Dividends: This is the ultimate cash flow to the ‘shareholders’. It is the money distributed after removing retained earnings from the earnings, i.e. Dividends = Earnings – Retained Earnings. Ethereum based projects so far seem to prefer to distribute dividends in the form of Ether.
  • Buybacks: Buybacks refers to using the free cash flow to buy and burn some of the tokens, instead of paying it out in the form of dividends. As far as I know, none of the projects are using any earnings for the purposes of a buyback. However, Bitshares implemented such a system, which however isn’t very visible due to later introduction of inflation. I suspect some projects in the future might opt for buybacks in addition to dividends.

Valuation Methodologies

For the first time for crypto investors, it is possible to create a valuation model for these cryptocurrencies. That’s right, the dividend paying cryptocurrencies should be driven more by the underlying economics and less by speculation. Therefore, I expect the volatility to be lower than regular cryptocurrencies. Also, I expect their behavior to be similar to stocks in the stock markets. This is a good thing, because we can now use methodologies and analysis that works in the stock market already.

Before we proceed though, please note that valuing any cryptocurrency, even Bitcoin, is going be a very difficult task because the value is driven more by supply and demand and speculation than any income-earning potential. There is bound to be a fair element of speculation even within these types of cryptocurrencies.

Price-to-Earnings Ratio (PE Ratio)

The PE ratio makes the most sense out of all the other ratios, like price to sales, although you should keep an eye on those as well. The PE ratio that would determine the fair value of the token should take future growth into consideration. If the expected growth is high, the ratio will be higher, and the price of the token will also be higher. the expectation is that the future dividends from this dividend paying cryptocurrency will be higher than they are now, and grow at a rapid rate.

You should also take special events into consideration. Take Augur for instance. The market will likely grow with time, and you get a ‘stable’ PE ratio based on that growth. However, there will be other growth spurts, like in 2020 presidential elections, with the markets likely starting to take hold around 2019 already. Then there are major sporting events, like the soccer world cup globally, or US based events like the super bowl that will likely attract a lot of betting. In terms of growth, you should take organic growth in existing markets, like politics and sports, but also opening up of new markets, like financial CFDs or esports.

Note that assigning a PE ratio assumes a going concern for the ecosystem, i.e. it will last indefinitely. If you don’t believe this to be true, discount your analysis accordingly.

Dividend Discount Models

In cases where the dividend is easy to estimate as a percentage of earnings, you can apply dividend discount models to value these dividend paying tokens. One advantage of this method over PE ratio is you can split this up into components with different growth rates, and calculate the value accordingly. You also have more flexibility in terms of assigning a terminal value, after a given period, to make it aggressive or conservative.

The Gordon Growth Model is the simplest type of dividend discount model that you can use. It assumes a single growth rate and rate of return. This is usually too simple, so you can apply one of the multi-stage dividend discount models as well. Ultimately, you can tweak and play around with the number of growth stages, assumptions of growth, and terminal value calculations.

The biggest challenge is trying to calculate the required rate of return. This is an almost impossible task for cryptocurrencies. Your assumptions here will greatly affect the final outcome of the valuation.

Conclusion

The stock-like characteristics of dividend paying cryptocurrencies allow us to use some of the models used to value stocks. This helps provide a benchmark valuation model. Depending on the valuation obtained from the model, and the price determined in the free-market exchanges, an investor can make a decision whether to invest in this cryptocurrency or not, or what the fair value is. Combined with a margin of safety, the fair value estimation will determine whether the investor would buy or sell, or just stay put without taking any position. However, speculation can also play a role, like with any other cryptocurrencies.

Photo Credit: Flickr

Oct 252016
 

How to Buy ICONOMI Exchanges

Here’s how to buy ICONOMI (or ICN token) on ICONOMI exchanges. You can buy ICONOMI in many ways, using fiat or government money (like US Dollar and Euro) or other cryptocurrencies (Bitcoin and Ethereum). Note that ICONOMI is a token on Ethereum, which means the ICN/ETH market will be more active than some other Ethereum markets.

ICONOMI is one of the first dividend-paying crypto tokens built on top of Ethereum. The project generates revenues in a number of ways:

  • It’s flagship fund, ICONOMI.INDEX is a passive-investment vehicle for the crypto community. This will give investors exposure to cryptocurrency as an asset class, without worrying about managing many different cryptocurrencies individually, buying on exchanges, storing the wallet keys, etc.
  • It’s flagship fund, ICONOMI.PERFORMANCE is an active-investment vehicle for the crypto community. The team will employ crypto traders who will try to beat the market (likely the index defined above). When they do, it generates performance fees for the ICN token holders.
  • Open Fund Management Platform, which allows others to start their own fund and charge money. ICONOMI will simply provide the platform, and take a small commission. This commission will be distributed among the ICN token holders.

All these can generate a significant amount of revenue, depending on the kind of market share it is able to capture.

Note that buying ICONOMI funds (ICONOMI.INDEX and ICONOMI.PERFORMANCE) is different from buying ICN. The ICN token is the profit-sharing token. This means all profits from the flagship funds, and the open fund management platform will be distributed to the ICN token holders. As an analogy, ICN is the stock of a financial company that sells different funds. The profits from the funds are distributed to the stockholders.

Now here are different ways to buy ICONOMI (i.e. the ICN tokens).

Regular Exchanges

You can buy ICONOMI on regular crypto exchanges. These are centralized exchanges with their own order book. Some of these will also allow trading directly or indirectly using local fiat.

At the moment, Kraken is the major ICONOMI exchange where you can buy ICN. It trades two pairs – ICN/BTC and ICN/ETH (the first allows you to buy ICONOMI using Bitcoin, the second using Ethereum). However, Kraken also trades BTC/USD and BTC/EUR. Therefore, if you only have local fiat and don’t have any Bitcoin, you can use the same exchange Kraken to first buy some BTC, and then use this BTC to buy ICN. Here’s a detailed guide on how to buy ICN on Kraken.

Liqui is another exchange that has listed ICONOMI. I haven’t used that exchange personally and cannot comment on its legitimacy or user experience.

ICONOMI on Poloniex

At the time of this writing, ICONOMI (ICN) doesn’t trade on Poloniex. The reasons are unclear. Understandably, some of the early adopters are puzzled by this development. ICONOMI raised $10 million, which is plenty to get Poloniex some nice fees. It has listed coins that raised far less. Also, the ICONOMI team constantly made mention of NDAs with exchanges, so they couldn’t disclose where it will be traded. This is a Poloniex practice, so it understandably led to speculation that ICONOMI will trade on Poloniex.

Some think it is because ICONOMI behaves too much like a security, with its dividend payments. However, other projects that do the same, like REP, are listed on Poloniex. There is no clear answer on why ICONOMI doesn’t trade on Poloniex yet.

Decentralized Exchanges

Centralized exchanges are prone to hacking risk, regulatory risk, and other risks. Since ICONOMI is an Ethereum-based token, there are some decentralized exchanges where you can buy it. Note that there is no counterparty risk with these exchanges. However, you will need Ethereum first to buy from these exchanges.

At the moment, you can buy ICONOMI on Ether Delta. The order book is thin and the trading is lower than on regular centralized exchanges. Still, if you’re patient and don’t want to buy too much of ICN, this is a safer route.

OTC Sales

If you’re a big fish looking to invest in ICONOMI for the longer term, try to do OTC sales instead of going through exchanges. This is so you don’t move the market with a large buy order, and you can be more sneaky about things. Since ICONOMI launched with a fairly decent bounty, there are lots of newbies looking to sell. Check out some people on their Bitcointalk ANN thread and you might be able to make individual deals, hiding your buying intentions.

Photo Credit: IMF